Regressive Recovery

By now it has become a truism that the
California economy, which fell further than the rest of the nation
in the recession of the early 1990s, and took longer to recover,
has come back vigorously and is now outpacing the national economy.
That's true whether one measures the rise in jobs, personal income,
or the state's overall output in goods and services. California's
unemployment rate is still a full point higher than the national
rate, but as the Center for the Continuing Study of the California
Economy (CCSCE) summarized early in 1997, "the state has
regained all the jobs lost between 1990 and 1994 [and] most economists
expect that the California economy will grow in 1997 and 1998outpacing
the nation each year."

More impressively, the recovery was led by what CCSCE
calls "future high growth sectors": high technology;
foreign trade, particularly with Latin America and the nations
of the Pacific Rim; tourism and entertainment; and professional
servicesall sectors regarded as essential to the nation's long-term
economic health. In large part, growth in those areas has replaced
the jobs that vanished with the crash in defense spending on which
the Golden State had been disproportionately dependent.

All that, not surprisingly, has produced
a whole new Golden State romance, particularly about the brash,
open high-tech industries and the free market in which they thrive.
"The emerging face of Californiaethnically diverse, technologically
advanced, entrepreneurial, globally minded and highly innovativeholds
out an enormous promise for most of the state's residents,"
said Joel Kotkin, one of the prophets of Pacific Rim nirvana,
in a breathless report issued last year by the New West Center.
"Nowhere is California's lock on 'knowledge value' more obvious
than in thefield of science-based industry. Despite the many predictions
that California would lose momentum in those critical fields,
the state has actually consolidated its dominant role as the premier
center for innovation and research. The state's market share in
high-technology employment has actually grown by one-third since
the mid 1970s."

But while the California comeback may arise from
those "future high growth sectors," the recovery has
economic and social characteristics that foreshadow a considerably
more uncertain future. The state looks less and less like the
old California dream and more and more like the Asian tigers and
the other developing nations with which California, as a Pacific
Rim trader, is so heavily engaged.

Begin
with the most obvious element. In the past two decades, as almost
everyone now knows, the gap between the highest and lowest income
brackets has been growing. But in California, once regarded as
the place whose education system and social services promised
almost unlimited opportunity to reduce those gaps, the problem
has become even more worrisome. Last year, in the first major
study of its kind, the Public Policy Institute of California found
that the difference between the incomes of those in the highest
20 percent of the population and those in the bottom 20 percent
was increasing much more sharply in California than in other states.
This finding marked a significant shiftduring the 1980s the gap
in California also grew, but at about the same rate as other statesand
it was all the more alarming because of the cause. PPIC concluded
that, to put it simply, California's poor have been getting poorer
faster than in the nation as a whole.

Between 1976 and 1994, family income
for the poorest tenth in America fell 13 percent; in California,
PPIC reported, it declined 36 percent. For those in the second
tenth, the national median was down 6 percent; in California,
it was down 27 percent. Those deciles at the bottom, needless
to say, are predominantly black and Hispanic.

There may not be so much mystery about
all this.

With one exception (general managers), the five fastest-
growing job categories in California are all semiskilled or unskilled
occupations paying $6 or less per hour-waiters and waitresses;
retail sales clerks; cashiers; and general office clerks. In a
state like California, with its large population of unskilled
aliens and the continued flow of illegal immigrants from Mexico
and Central America, the story should be even more obvious. There
isenhanced border controls notwithstandinga nearly unlimited
supply of cheap labor, not just for farm work, but for the burgeoning
Southern California garment industry, the growing ranks of the
various service industries, and virtually anything else that can
use unskilled workers. (With this kind of labor supply, and with
large numbers of people being driven from welfare rolls to compete
with the rest of the low-wage labor force, it's hard to imagine
why Alan Greenspan worries so much about inflation.)

And so while the cheering goes on for
the stars of DreamWorks and other high-flying Hollywood ventures,
for the new fusion of computer and graphics technologies, and
for the unique economic vitality of the interlinked companies
of Silicon Valley with its large numbers of foreign-born entrepreneurs,
engineers, technicians, and scientists (in terms of ethnicity
and gender, Silicon Valley may be the most highly integrated and
diversified job site in the world), almost no one has noticed
the other half of this economy, which has been growing just as
rapidly. Agriculture and canning in California now employ an estimated
500,000 workers, more than all the high-tech manufacturing put
together, and, as Don Villarejo and CIRS, the California Institute
for Rural Studies, have pointed out, the number seems to be rising
as growers shift from field crops like wheat to more-intensive,
high-value producewhich is less mechanized and requires more
hard labor. The result is a combination of higher production and
lower wages.

Many of those workers remain officially
invisible. CIRS recently demonstrated, complete with maps, that
there are thousands of people living in garages, tool sheds, and
the other "back houses" of California Central Valley
towns like Parlier. Nobody has recorded these people's existencenot
the Census Bureau, not the Bureau of Labor Statistics, not the
Department of Health and Human Services, nor anyone else. Their
existence is far closer to John Steinbeck's California of the
1930s than to anything being cheered by the Center for the New
West. Farmworker wages, now averaging about $6,500 a year, are
down everywhere in America, but they have fallen considerably
more in California, down from just over $6 an hour in 1985 to
just over $5 (compared to a national average of just over $6 nationally)
in 1996. On the job, many still have no access either to drinking
water or toilets; few get employer-paid health benefits.

The same goes for the thousands of
workers in the garment industry. The apparel business is virtually
the only sector of California manufacturing to add substantial
numbers of jobs between 1990 and 1996. Despite recent efforts
to foster collaboration among unions, manufacturers, and retailers
in securing compliance with the minimum wage and other basic labor
standards, thousands of people continue to work in sweatshop conditions.

Surveys by the state Controller's Office,
among others, bolstered these findings by showing that even in
glamour sectors like Silicon Valley, a growing percentage of the
jobs go to contingent workerspeople who have neither permanent
jobs nor the benefits that used to come with them. That in part
explains another California anomaly: While the state has some
of the nation's most liberal Medicaid eligibility rules (and still
covers a relatively generous menu of services), it also ranks
among the top ten states in the nation in the percentage of its
populationnearly a fourththat has no health insurance at all,
and in the percentage of births where the mother had no prenatal
care in the first trimester. California, which has led the country
into managed care, now also seems to be leading it into the new
world of the working uninsured.

Accompanyingand
exacerbatingthe growing gap in incomes is the tax shift that
took place in the past five years. California's tax structure
has always been relatively progressive, but the recent shifts
have made it less progressive than it once was.

To cope with severe budget shortfalls
of the early 1990ssome caused by the recession, some the result
of the revenue limitations written into the state constitution
by Proposition 13 and the series of other tax-cutting measures
that followed in its wakeGovernor Pete Wilson and the state legislature,
then controlled by Democrats, made a deal in 1991 sharply curtailing
public services and increasing taxes where they could. Those tax
increases fell in roughly equal proportions on all economic brackets.
Chief among them was the addition of two new upper-income brackets
to the state income tax; the suspension of the renters' tax credit,
which had gone largely to low- and moderate-income taxpayers who
got no mortgage-interest deduction; an increase of 1.25 cents on the dollar in
the sales tax plus a hefty increase in motor vehicle license fees,
both paid disproportionately by moderate-income earners; and extension
of sales taxes to such things as bunker fuel (for ships) and aircraft
jet fuel.

But last year, after the recession
ended, Wilson and the legislature repealed or allowed to lapse
those taxes that had hit primarily upper-income taxpayers; it
left in place those taxes that primarily hit poor and low-income
families. Thus the renters' tax credit suspension was extended
again and seems on the verge of becoming permanent, effectively
raising taxes for low- and middle-income people by some $500 million
a year; the sales tax increase became permanent and the increase
in vehicle license fees remained in effect. But the state allowed
the upper-income tax brackets to sunset, repealed the sales tax
extensions on jet and bunker fuel, and reduced a variety of other
business taxes. What had been a $7.3 billion tax increase that
fell more or less evenly across economic groups thus became a
$5.6 billion increase that fell almost entirely on poor and middle-income
taxpayersand this all came on top of an additional $1.6 billion
in business tax reductions that California had enacted between
1991 and 1996. Last November, when it appeared that a labor-backed
initiative restoring the upper-income tax brackets might have
a chance of passing, the leaders of the state Chamber of Commerce,
diverting funds from another initiative campaign, dumped more
than $2 million into the drive, ultimately successful, to defeat
it.

The tax shift has been further compounded
by reductions in public services and higher fees for what remains.
Over a three-year period, tuition doubled in what was once a model
system of low-cost public higher education. Meanwhile, the state
reduced county services in everything from public libraries to
child-abuse prevention programs. The public school system, which
has been deteriorating for twenty years, still suffers. Even with
a new influx of state funding, California is still about fortieth
among the states in what it spends per pupil; its facilities and
materialswhether measured in leaky roofs and peeling paint or
in the number of computers per studentare among the worst in
the modern world. Even in highway maintenance and construction,
California, once the symbol of the nation's romance with the automobile,
is now judged (in the ratings of the U.S. Department of Transportation)
to have some of the most deteriorated roads and bridges in the
country.

More broadly, just as California's
minorities increasingly must depend on those once-exemplary services,
the shifts of the past 15 years have engulfed the state in a fee
ethic of increasingly privatized services, which dictates that
wherever possible (which means everything but public safety, and
sometimes even that), it is the immediate beneficiaries of any
given public service who should pay the lion's share of it. Why
should we pay for their schools? Why should they go
to college for nothing? California, the home of Hollywood and
the paramount symbol of entertainment in America, spends less
per capita on public arts programs than South Carolina.

One
sector in which the new California is the unchallenged
national leader is in the development of gated communities. According
to Edward Blakely, the dean of the school of planning at the University
of Southern California, nearly a million Californians now live
in developments behind gates ranging from "elaborate two-story
guardhouses manned 24 hours a day to roll-back iron gates to simple
electronic arms." Even outside those gates, there aren't
many affluent areas in places like Los Angeles or Palm Springs
where neighborhood associations haven't hired private patrols:
In the upscale West Side neighborhoods of Malibu and Pacific Palisades,
the most common lawn sign is that of Westec Security with its
large yellow letters warning "ARMED RESPONSE."

To be sure, it's not just Californians
who are looking for gates, fences, and armed patrols. Nor is it
just the rich. A growing number of middle-class apartment and
condo projects in places like the San Fernando Valley have erected
road barriers and other security devices to keep strangers out.
Sometimes even the poor in subsidized housing ask for gates. But
that only reinforces the point. The fence segregatesby race,
or class, or simply by aesthetic sensitivityand declares no confidence
in the commonweal. It means that no uninvited people appear on
the streetsneither Jehovah's Witnesses passing out tracts nor
environmentalists circulating petitions to protect the habitat
of the snail darter and the fairy shrimp, to say nothing of homeless
people pushing carts between shelter and soup kitchen. No one
comes through the gate who is not invited by a resident. Whatever
the combination of motivesfear, hope, fantasythe social implications
for community are obvious enough. Blakely, using data provided
by the state's Building Industry Association, estimates that nine
out of ten new middle- and upper-income housing developments in
California are "forting up" as gated communities, many
of them with their own police patrol and other privatized community
services.

Which brings this truncated story full
circle. California, a state of 32 million people that will be
less than half white shortly after the turn of the century, is
widely regarded as the test for a nation that will itself become
increasingly Hispanic and Asian. The question is whether in its
economic and social ideals, California will evolve as an integrated
community, or as a series of increasingly divided economic and
social enclaves. Los Angeles Mayor Richard Riordan calls LA "the
capital city of the future," but in its essential patterns,
the new California slowly begins to look like Singapore, Caracas,
or (until the summer of 1997) that model of Milton Friedman's
unrestrained free markets, Hong Kong, and ever less like the old
California dream. The new California glamour boys and girlsthe
computer whizzes, the graphic artists, the entrepreneurs and techies,
the engineers and lawyers and traders, all fully cell-phoned and
modemed, most operating in three time zones, if not in eight or
tenare far more connected to their peers in the high-rises of
New York or London than to the minimum-wage barrios and the decayed
public services down the street or outside the fence.

In some respects, that was always the
case. The optimists contend that in places like Los Angeles or
San Jose we may merely be witnessing a replay of New York or Boston
in the peak years of immigration and industrialization of the
1880s: Wait 'til those Latinos get a little more economic clout;
wait 'til they really start voting. But as one looks both at the
economic data and at the landscape, never, at least since the
Depression, have the gaps between classes seemed as great in America
as they are in the new California. Even as Pete Wilson was celebrating
the state's powerful economic resurgence this spring, he was demanding
more business tax cuts.

This spring, the state's Industrial Welfare Commission,
dominated by Wilson appointees flying the flag of global competitiveness
and work-hour flexibility (though only at the option of the employer),
voted to abolish the state's requirement that employers pay overtime
to workers who put in more than eight hours in any given day.
Henceforth, if the courts do not overrule the commission, there
will be no overtime until a worker has done his or her forty weekly
hours. California was one of the few states to have such a requirement,
which was first established in the Progressive Era. In that respect,
it might be said that the abolition of the rule only moved the
state toward the rest of the country. But it also moved California
another step closer to that two-tier global economy toward which
the Golden State is so resolutely marching.

About the Author

Peter Schrag, a longtime education writer and editor, is the author of Paradise Lost: California's Experience, America's Future and most recently, California: America's High-Stakes Experiment. He is a former editorial page editor of the Sacramento Bee.